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Investigation Report to Competition Commission

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					                    Investigation Report to Competition Commission


EXCLUSIVE CONTRACTS AGREEMENTS IN THE MONEY TRANSFER SERVICES IN
THE GAMBIA

EXECUTIVE SUMMARY

In The Gambia, money transfer services are provided by a number of internationally-
recognized and established financial institutions, namely, Western Union, Money-Gram, RIA
and Money Express, through various licensed outlets which include commercial banks and
foreign exchange bureaus. These establishments, which act as local representatives, agents
or sellers of these renowned enterprises, are bound by an agreement which bars them from
serving a competitor in the same outlet, both during and after the termination of the contract,
for a long duration, thereafter.

J-Financial Services Ltd., one of the many local service providers, which has been serving as
an agent of Money-Gram since 2008, filed a complaint to the Competition Commission in April
2010 expressing its concern over a clause in the agreement which it considers to be un-
favorable and stifling to its business. J-Financial services Ltd is therefore seeking the
intervention of the Competition Commission for its nullification and expunging from the
contract.

The Commission’s investigation has confirmed that the agreements between the major
providers of money transfer services, Western Union and Money-Gram, and their
representatives have an exclusivity clause that is restrictive and anti-competitive in nature,
and goes against the provisions of the Competition Act 2007, thus calling for remediation. The
existing arrangements with the two dominant agents prohibit local agents from providing other
money transfer services in their premises while under contract with them, and even after the
termination of the contract, up to180 days thereafter.

The Commission proceeded with an investigation of the matter convinced that the clause in
the agreement may have an adverse effect on competition in the money transfer business
and made its findings.

The Commission’s investigation discloses that –

   (i)    Western Union and Money-Gram together provide about ninety-six percent of the
          money transfer services in The Gambia and are, therefore, in a duopolistic
          situation;

   (ii)   Western Union and Money-Gram, the leading providers of money transfer services,
          are exploiting the monopoly situation by having in their respective agreements
          between them and their representatives an exclusivity clause that is restrictive and
          anti-competitive in nature. The existing arrangements with the two dominant agents
          prohibit local agents from providing other money transfer services in their premises
          while contracted to them.
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                     Investigation Report to Competition Commission



   (iii)   Even after the termination or expiration of the respective contracts between
           Western Union and Money-Gram and their agents, a former agent should not be
           engaged as an agent for another money transfer service for at least 180 days in the
           case of Money-Gram; or for one year in the case of Western Union thereafter. This
           practice distorts competition and constitutes an abuse of the dominant position
           situation enjoyed by western Union and money-Gram in the Gambian market.


In the light of the provisions of the Act regarding restrictive practices, the Commission:

  (i) Directs that the clause in the agreement be removed as it inhibits competition in the
      money transfer business, and stifles the growth and expansion potential of local
      Western Union and Money-Gram representatives, on the one hand, and is unfavourable
      and inconvenient to customers who would like to have a one-stop outlet that provides
      services of the various money transfer providers.




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                    Investigation Report to Competition Commission




BACKGROUND

The Concern

International money transfer has become a prominent and vibrant feature in The Gambia’s
financial services sector with 358 outlets currently providing such services country-wide. The
major operators of international money transfer are Western Union, Money-Gram and Money
Express, which provide services through authorized agencies or representatives, which are
mainly commercial banks. These, in turn, extend such services to the public through licensed
foreign exchange bureaus and micro-finance institutions. These money transfer services
provide opportunity to individuals and institutions to transfer money to all
locations/destinations in and outside the country.

One local money transfer agent, J-Financial Services Ltd. which serves Money-Gram, wrote
on 27 April 2010, expressing concern over this provision in the agreement as it sees it as anti-
competitive and a violation of the Competition Act 2007. In its complaint letter, J-Financial
Services Ltd. contends that this clause in the agreement hinders open and healthy
competition among Money Transfer Operators in The Gambia, and poses an added burden
and cost on clients living outside the major settlements, to access such services which are
concentrated in the urban areas. The complainant, desirous of serving multiple international
money transfer providers, had sought guidance from the Central Bank of The Gambia on the
feasibility of this, but to no avail.

In an effort to make a solid case for the Competition Commission to expressly review the
exclusivity clause with a view to it ordering its omission as a condition for prospective
representatives or agents of international money transfer operators to be contracted to
provide such services locally, the complainant cites the case of Ghana, where the Bank of
Ghana has directed that the exclusivity clause in agreements between money transfer
establishments and Ghanaian banks be expunged from such agreements, as such
arrangements limit competition in the industry.(See attached letter from Bank of
Ghana).The argument advanced in support of the expunging of the exclusivity clause in
agreements with international money transfer providers is that it will allow operators, big or
small, to serve more than one service provider and enhance open and healthy competition
among money transfer operators in the country, and will be to the advantage of the growing
clientele.

The Procedural Rules 2008 of the Act 2007 provide for complaints of suspected anti-
competitive practices to be lodged by enterprises and consumers with the Commission for
possible intervention. In this regard, the Executive Secretary is mandated to either reject the
complaint if unsubstantiated, and to explain in writing to the complainant why such action has
been taken; and if there is any doubt as to whether the subject matter falls within the scope of
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                     Investigation Report to Competition Commission


the Act, to refer the issue to the Commission for its decision.

In this instance, the Commission proceeded with an investigation of the matter convinced that
this clause in the agreement may have an adverse effect on competition in the money transfer
business.

LEGAL BACKGROUND

Section 15(a)-(f) of the Competition Act clearly provides that one of the functions of the
Commission includes the conduct of investigation either on its own initiative or on the receipt
of a complaint from a person. The complaint must fall within the provisions of the Act. If after
an investigation, the Commissions’ finds that a provision of the Act has been breached it must
determine the appropriate penalty or remedy to impose.

Part II and III of the Procedural Rules 2008, provide for complaints of suspected anti-
competitive practices to be lodged by enterprises and consumers with the Commission for
possible intervention.

Section 20 (d) empowers the Executive Secretary to receive complaints about alleged anti-
competitive practices and mandates him/her to either reject the complaint if unsubstantiated,
and to explain in writing to the complainant why such action; and if there is any doubt as to
whether the subject matter falls within the scope of the Act, to refer the issue to the
Commission for its decision.

Section 31 (1) (b) of the Act, provides that “a monopoly situation exists in relation to goods or
services if seventy-five percent or more of the goods or services are supplied or acquired by
three or fewer enterprises.”If the percentage of market share enjoyed by the two or either of
them is taken into account, then they can be considered as having a monopoly, and,
therefore, subject to investigation, provided the Commission believes that the manner in
which they conduct their business has the object or effect of preventing, restricting or
distorting competition or constitutes exploitation of the monopoly situation.

The clause contained in the respective agreements (Clause 7 Western Union Agreement) and
(Clause 3 Money-Gram Agreement) violates the provision of section 31 of the Competition
Act, 2007, thus calling for remediation.

Section 31 (2) of The Act provides that in reviewing a monopoly situation the GCC should
take into account whether the conduct was or is “likely to have an adverse effect on the
efficiency, adaptability and competitiveness of the economy of The Gambia” or is “likely to be
detrimental to the interest of consumers.” If the reported complaint is viewed as monopolistic,
then it contravenes the provisions of the Competition Act 2007.

Though the Competition Act 2007 does not specifically speak to the issue of exclusivity as
stipulated in the agreements between Western Union and Money-Gram and their respective
agents in The Gambia, it does prohibit restrictive agreements such as collusions and bid-
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                      Investigation Report to Competition Commission


rigging (Section 25). In spite of the fact that the exclusivity clause does not fall under any of
the two prohibitions, it has an element of “tie-in”, which is an anti-competitive practice. Section
50 (1) of the Competition Act applies to the matter as the exclusivity clause in the agreements
of Western Union and Money-Gram with their agents/representatives has the object or effect
of preventing, restricting or distorting competition.

Pursuant to the provisions of Sections 15 and 20 of the Competition Act, and the Procedural
Rules 2008, the Executive Secretary, acting on behalf of the Commission, conducted an
investigation to determine whether the exclusivity clause in the agreements of Western Union
and Money-Gram, respectively, constitutes a breach of the provisions of the Act.


THE INVESTIGATION AND FINDINGS

The focus of the investigation was to determine if the exclusivity clause was anti-competitive
and whether it violated the provisions of the Competition Act 2007, and to assess the extent
to which it had the object or effect of preventing, restricting or distorting competition among
operators in the money transfer business in the country.

The Commission, therefore, in investigating the matter considered whether under (35(2)) the
service provider:

  i.    By having such a clause in the agreement was protecting its market power or reducing
        the market share of its competitors.

 ii.    By restricting agents from contract similar services from other providers after the expiry
        of the current contract was fair and legal.

 iii.   By having such a clause, customers’ access to multiple services within a single outlet
        was being denied or hindered.

 iv.    Has by virtue of the insertion of this clause has acted in contravention of the Act 2007
        which seeks to provide a competitive environment for operators of a similar business
        in the country.

 v.     The service provider by the referenced exclusionary clause in the money transfer
        agreement is likely to distort competition in the market, and, therefore, should be
        subject to review as prescribed by the Competition Act 2007.


The investigation revealed that Western Union and Money-Gram are the dominant providers
of money transfer services in the country, which could be attributed to the fact that they
operate worldwide and have a long-standing track record in the money transfer business. The
former is the pioneer in the transferring of money globally, and the first to establish outlets for
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                     Investigation Report to Competition Commission


providing such services in the country. Western Union and Money-Gram have pretty much
become house-hold names in the country as it relates to ‘receiving’ and ‘sending’ money. At
the time of the investigation, Western Union had 283 outlets and Money-Gram had 62.
Together, they enjoy 96.4% of the market share which clearly indicates a monopoly in this
market as per parameters set in the Competition Act section31 (1) (b). Even though this was
not the focus of the investigation, we strongly recommend that the activities of Western Union
and Money-Gram be closely monitored to ensure that they do not use their dominant position
to lessen competition in any way shape or form.

A review of the International Representative Agreement of Western Union and the
International Money Transfer Agreement of Money-Gram, respectively, indicated that both
service providers prohibit their “representatives” (Western Union) and “sellers” (Money-Gram)
from providing services of competing businesses, both during the term of the contract and
after termination of the agreement for any reason, for a period of at least 180 days. Both
service providers consider this condition as being in the public interest in that it would “protect
the general public from confusion and the passing off of other competing services.” Money-
Gram believes this to be reasonable.

In response to a letter from the Central Bank of The Gambia (September 13, 2011) to
Western Union (4th October 2011) on the issue of the exclusivity clause in the representation
agreements, the latter proposed a “freedom of choice model” which will allow present and
prospective representatives/agents to chose one of three options of doing business with it.

The three options offered in the “freedom of choice model” are:

   1. Non-Exclusive Option. This option allows agents to “offer competing money transfer
      services in the totality of their respective networks, regardless of the distribution
      channel used for these services. This option is suitable for Agents interested in offering
      several money transfer services simultaneously.

   2. Semi-Exclusive Option. This option allows Agents to offer competing money transfer
      services in one part of their respective networks, and another part exclusively to
      serving Western Union. This option gives the Agent option to choose which of its
      outlets will provide Western Union services only, and which will provide services of
      competitors.

   3. Exclusive Option. This option is the traditional mode of providing Western Union
      services, which is more suited to Agents whose preference is for serving Western
      Union only.

Under this “freedom of choice” model, higher compensation will be paid to agents operating
the Exclusive option and lower compensation for the non-exclusive option.


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                    Investigation Report to Competition Commission


CONCLUSION AND RECOMMENDATION

Having thoroughly reviewed the matter in the light of the provisions of the Act 2007, the
Commission is of the opinion that the exclusivity clause in the agreements does infringe on
the provisions of the Act, and is a serious impediment to growth and fair competition in the
money transfer industry, and, therefore, should be promptly expunged in both existing and
future agreements.

The Commission strongly believes that the exclusivity clause in the agreements of Western
Union and Money-Gram, respectively, is intended to protect the service provider from its
competitors, and to consolidate its predominant position in the Gambian market, which is an
anti-competitive practice and a violation of the Act. Requiring prospective representatives or
agents to agree to clauses in agreements restricting them to serving only one money transfer
operator at a time, and not to serve any other competitor while serving as a representative or
agent, or even after the expiration of the contract, is not only a violation of the Competition
Act, but also a denial of the individual’s right to choose. The exclusivity clause in the
agreements between international money transfer providers and local representatives or
agencies restricts a service provider from offering multiple services, and does not consider
the interest of the consumers. The caveat at page 6 under the so-called freedom of choice
model, suggesting different compensation level for exclusivity in operation has the same
effect of exclusivity and therefore offends the letter and spirit of the Act.

The expunging of exclusivity clauses in the agreements will not only benefit customers in
terms of cost and time, but will also allow Money Transfer Agents to maximize their
investments.

Having weighed the advantages and disadvantages of the Western Union’s “freedom of
choice model”, it is believed that its adoption will not address the concern of J-Financial
Services Ltd., as it seeks to maintain the status quo through differentiated rates of
compensation. The commission cannot allow that either and therefore directs that such
provision be also expunged from all agreements. The commission seeks to provide
customers a convenient one-stop facility that will not impose added financial burdens on
those that would rather have one outlet providing multiple services than just a single service.
The aim of the GCC is ensure unfettered competition in this particular market.




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                     Investigation Report to Competition Commission


                                                                             Annex I
EXCLUSIVE CLAUSES IN THE AGREEMENTS

(A) Money Gram

3. Competing Services

Seller agrees to only offer the Money Transfer Services and will not offer any competing
service. For a period of one hundred and eighty days following termination of this Agreement
for any reason, Seller will not offer or sell at any location any Competing Services. Seller
agree to procure that no member of the Seller’s group shall offer any competing services
during the term of agreement and for a period of one hundred and eighty days following
termination of the agreement for any reason. Seller acknowledges that its compensation
during the term of the agreement is intended to compensate Seller for the post-termination
period and that it believes the restriction to be reasonable and in public interest, by protecting
the general public from confusion and the passing off of other computing services.

(B) Western Union-Mandatory Sub-Representative Contract Provisions

c. Exclusivity.

Sub-representative shall use its best efforts to develop, promote and increase the Money
Transfer Service and to promote and enhance the good will associated therewith and with the
trade names, trademarks and service marks of Western Union. Sub-representative therefore
agrees that it will not, during the Term of this agreement and for a period of one year following
its expiration or termination, acts as agent for or represent, or operate as principal, another
money transfer service or any other business or service which would Involve Sub-
representative in activities inconsistent with Its obligation to WESTERN UNION and
REPRESENTATIVE under this Agreement or would tend to cause public confusion. Sub-
Representative agrees that this restriction is reasonable and necessary to protect the
reputation of this Money Transfer Service and of Western Union and that the compensation
received under this Agreement anticipates the post-terminal restriction period.

7. Competing Services. Representation Not Exclusive

7.1 REPRESENTATIVE agrees that it will not, during the Term and for one year after its
expiration or termination, act as an agent for or represent, or operate as principal, another
consumer money transfer service, or engage directly or indirectly in any money transfer
services other than as a representative for WESTERN UNION.                        Furthermore,
REPRESENTATIVE agrees that its employee, affiliates, subsidiaries officers and directors will
not during the Term of this Agreement and for one year after its expiration or termination, act
as an agent for or represent, or operate as principal, another consumer money transfer
service or engage directly or indirectly in any money transfer other than as a representative
for WESTERN UNION.
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                     Investigation Report to Competition Commission


                                                                      Annex II

STATISTICS INDICATING MAKET SHAREOF WESTERN UNION & MONEY GRAM AND
OTHERS

Identified Money Transfer Outlets:

   1.   Foreign Exchange Bureaus      229
   2.   Bank                           75
   3.   Q-net Cafes                    13
   4.   Micro Finance institutions     41
        TOTAL                         358


Market Share:
  1. Western Union         283 outlets = 79.1%
  2. Money Gram             62 outlets = 17.3%
  3. Money Express           5 outlets = 1.4%
  4. RIA                     8 outlets = 2.2 %

Western Union & Money Gram total market share is 96.4%




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